Pacific Trade Pact Calls for Tough Japan Reforms

Friday, 15 Mar 2013 | 9:12 AM ETThe Associated Press

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Japanese Prime Minister Shinzo Abe

Prime Minister Shinzo Abe announced Friday that Japan will join talks on a Pacific trade pact that would oblige the country to open up protected industries including farming, long a bastion of protectionism.

The decision to seek participation in the U.S.-led Trans-Pacific Partnership, or TPP, is raising protests from farmers opposed to opening home markets to foreign competition. While rural voters are a traditional bastion of support for Abe's Liberal Democratic Party, many in Japan see the pact as a way to overcome stubborn resistance to reforms essential for reviving the stagnant economy.

In a national address, Abe promised to guard the national interest and ensure that the trade pact would benefit farmers as well as other Japanese.

"What we really should fear is doing nothing," Abe said. "We are standing just at the entrance. I promise you that we will guard our sovereignty as we pursue our national benefit through these negotiations."

Abe has made longer-term economic reforms the third prong of his "Abenomics" economic strategy, along with easing monetary policy and boosting public spending.

"TPP is a core issue for Japan right now. The main thing is that Abenomics, the plan of getting Japan moving and growing again, does not only depend on printing more money or on fiscal spending, but really depends on liberalizing the economy," said Martin Schulz, an economist at Fujitsu Research Institute in Tokyo.

"For that, TPP is a core part because it involves all sectors, from energy, to agriculture, insurances, the car industry as well. That would be a big step for Japan," Schulz said.

Japan's agricultural lobby is small but politically powerful. However, after two decades of stagnation, calls by big business groups such as the Keidanren to join the trade pact or miss out on easier access to key export markets appear to have outweighed objections from farmers.

News reports Friday said the government estimates that joining the Pacific trade agreement would boost Japan's gross domestic product (GDP) by as much as 3 trillion yen ($31 billion) a year, equal to about 0.7 percent of GDP in the first year.

With Japan's participation, the free trade zone "would cover basically 40 percent of (world) GDP. It would be a very, very big area and it would have a significant impact," Schulz said.

Abe held back from committing to the trade pact until his recent visit to the U.S., where after meeting with President Barack Obama the two leaders issued a statement appearing to offer some wiggle room for Abe on thorny issues such as heavy protections for Japan's rice farmers.

Apart from the imperative for reforming the economy, Abe's agreement to push ahead with trade liberalization also reflects geopolitical realities: Japan's status as the leading U.S. ally in Asia also swayed the decision to participate in the trade talks.

"We have no choice," said Masayuki Kichikawa, of Bank of America/Merrill Lynch. "This is kind of a very delicate matter for Mr. Abe."

That angers some groups who object to foreign influence over domestic policy, including those who view the plan as an American scheme to usurp Japan's sovereignty.

"Obama has threatened Japan and forced us into joining TPP," Takaaki Tabuchi, a financial consultant, told a group of about 20 protesters who gathered near Tokyo's Shibuya train station late Thursday.

The protests this time, including a big gathering of farmers who conducted a rally at Tokyo's Hibiya Park on Tuesday, appear to lack the scale or passion of past anti-TPP demonstrations.

Abe's reassurances that Tokyo will not remove protections for strategically sensitive industries, such as rice farming, may have somewhat placated the Zenchu, or Japan's Central Union of Agricultural Cooperatives, the newspaper Nihon Keizai Shimbun said in a report Friday.

LDP secretary general Shigeru Ishiba said Abe told party leaders Friday that it is "now or never" to join the talks. He cited Abe as saying Japan would miss its change to have any say in negotiations on the trade pact if it waited until after upper house parliamentary elections, where the TPP decision could prove a liability for the ruling party.

The Obama administration has said it hopes to wrap up negotiations by the year's end. Including Japan is likely to slow that process.

In Washington, Democratic lawmakers presented a letter addressed to Obama raising concerns that the pact may threaten the U.S. auto industry.

They contend that Japanese auto exports to the U.S. could increase if the U.S. eliminates its current 2.5 percent car tariffs and 25 percent truck tariffs.